Question

On January 1, Year 1, Parker Company issued bonds with a face value of $75,000, a stated rate of interest of 6 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 8 percent at the time the bonds were issued. The bonds sold for $69,011. Parker used the effective interest rate method to amortize the bond discount. (Round your intermediate calculations and final answers to the nearest whole dollar amount.) Required a. Prepare an amortization table. b. What is the carrying value that would appear on the Year 4 balance sheet? c. What is the interest expense that would appear on the Year 4 income statement? d. What is the amount of cash outflow for interest that would appear in the operating activities section of the Year 4 statement of cash flows?

Answer 1

Solution a:

Bond Amortization Schedule
Year	Interest paid	Interest expense (8%)	Discount Amortized	Unamortized Discount	Carrying Value
Issue date				$5,989	$69,011
1	$4,500	$5,521	$1,021	$4,968	$70,032
2	$4,500	$5,603	$1,103	$3,866	$71,134
3	$4,500	$5,691	$1,191	$2,675	$72,325
4	$4,500	$5,786	$1,286	$1,389	$73,611
5	$4,500	$5,889	$1,389	$0	$75,000

Solution b:

carrying value that would appear on the Year 4 balance sheet = $73,611

Solution c:

interest expense that would appear on the Year 4 income statement = $5,786

Solution d:

amount of cash outflow for interest that would appear in the operating activities section of the Year 4 statement of cash flows = $4,500